National Feder. of Republican Assemblies v. U.S., CIV.A. 00-0759-RV-C.

• Decision Date: 31 May 2001
• Docket Number: No. CIV.A. 00-0759-RV-C.,CIV.A. 00-0759-RV-C.
• Citation: 148 F.Supp.2d 1273
• Parties: NATIONAL FEDERATION OF REPUBLICAN ASSEMBLIES, et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants.
• Court: U.S. District Court — Southern District of Alabama

148 F.Supp.2d 1273

NATIONAL FEDERATION OF REPUBLICAN ASSEMBLIES, et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants.

No. CIV.A. 00-0759-RV-C.

United States District Court, S.D. Alabama, Southern Division.

May 31, 2001.

COPYRIGHT MATERIAL OMITTED

James C. Johnston, Mobile, AL, James W. Zeigler, Mobile, AL, David B. Rivkin, Jr., pro hac vice, Frederick W. Chockley, pro hac vice, Lee A. Casey, pro hac vice, E. Mark Braden, pro hac vice, Baker & Hostetler LLP, Washington, DC, J. Michael Druhan, Jr., Johnston & Druhan, LLP, Mobile, AL, for plaintiffs.

Christopher M. Pietruszkiewicz, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC, Robert L. Welsh, U.S. Dept. of Justice, Washington, DC, for U.S.

ORDER

VOLLMER, Senior District Judge.

Presently before the court is the defendant United States of America's "Motion to Dismiss" (Doc. 15), as well as the plaintiffs' "Opposition to Defendants' Motion to Dismiss" (Doc. 19), and the "Reply of United States of America to Plaintiffs' Opposition to Defendants' Motion to Dismiss" (Doc. 23).

For the reasons put forth below, the government's motion is due to be granted in part and denied in part.

I. BACKGROUND

This is an action by the plaintiffs¹ seeking a declaratory judgment finding that the recently enacted Public Law 106-230, codified at 26 U.S.C. §§ 527(i), (j), is unconstitutional because it violates the First and Tenth Amendments, as well as the Equal Protection clause of the Fifth Amendment. The plaintiffs also seek a preliminary and permanent injunction against the enforcement of the requirements of 26 U.S.C. §§ 527(i), (j).

Public Law 106-230 went into effect on July 1, 2000, after being introduced as H.R. 4726. This law amended section 527 of the Internal Revenue Code ("I.R.C.") by adding two new subsections that require political organizations seeking to claim section 527 tax exempt status to file notification of their status and make certain disclosures of their expenditures and contributions. Stated generally, subsection (i) imposes registration requirements upon such organizations, and subsection (j) imposes disclosure requirements upon organizations, including a "penalty" for their failure to make such disclosures.

More specifically, subsection (i) requires a political organization to notify the I.R.S. of its desire to be treated as a 527 organization for income tax purposes and to provide basic information, including its name, address, purpose, and the identity of a contact person, custodian of records, officers, highly compensated employees, directors, and related entities. Failure to register results in that organization's political contributions being treated as taxable income until the requisite notice is given.

Subsection (j) requires a political organization to file at least two reports a year (more during election years), disclosing the identity of its major contributors (those who donated more than $200) and its major recipients of expenditures (more than $500). The timing and main elements of the disclosures are similar to those imposed by the Federal Election Campaign Act ("FECA"), 2 U.S.C. § 431 et seq. "[A] failure to make the required disclosures" results in the imposition of a "penalty" to be paid by the organization, of "an amount equal to the rate of tax specified in subsection (b)(1) [35%] multiplied by the amount to which the failure relates." 26 U.S.C. § 527(j)(1)(B).

I.R.C. § 527 establishes a "political organization" as a category of taxpayer.

Section 527(e)(1) defines "political organization" as:

a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function.

Section 527 then defines "exempt function" as:

the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed. Such term includes the making of expenditures relating to an office described in the preceding sentence which, if incurred by the individual, would be allowable as a deduction under section 162(a).

26 U.S.C. § 527(e)(2). Such qualified political organizations are not required to pay income tax on contributions received for the purpose of furthering the organization's exempt function.

II. MOTION TO DISMISS STANDARDS

The government has filed its motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6).² Under Rule 12(b)(6), a court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts which could be proven to be consistent with the allegations contained in the pleading. See Mesocap Indus. Ltd. v. Torm Lines, 194 F.3d 1342, 1343 (11th Cir.1999). The court must accept as true all well-pleaded factual allegations and view them in the light most favorable to the nonmoving party. See Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1273, n. 1 (11th Cir.1999).

In contrast, Rule 12(b)(1) motions come in two different forms—facial attacks and factual attacks. See, e.g., Eaton v. Dorchester Development, Inc., 692 F.2d 727, 731-33 (11th Cir.1982). Facial attacks require the court to determine whether the plaintiff has sufficiently alleged a basis for jurisdiction on the face of the complaint, and similar to Rule 12(b)(6) rulings, the factual allegations in the complaint are taken as true for the purposes of the motion. See Lawrence v. Dunbar, 919 F.2d 1525, 1529 (11th Cir.1990). Factual attacks challenge "the existence of subject matter jurisdiction in fact, irrespective of the pleadings, and matters outside the pleadings, such as testimony and affidavits, are considered." Id. In factual attacks, the presumption of truth of Rule 12(b)(6) does not attach, and the court is free to weigh the evidence and "evaluat[e] for itself the merits of jurisdictional claims." Id. (citation omitted). Since the matter at issue here is the court's "very power to hear the case," the attack is factual. See id. (citing and quoting Mortensen v. First Fed. Sav. and Loan Assoc., 549 F.2d 884, 891(3d Cir.1977)). Under a 12(b)(1) factual attack, the plaintiff has the burden of proving that jurisdiction does in fact exist. Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir.1980).³

III. DISCUSSION

a. Anti-Injunction Act

The government asserts that this court lacks jurisdiction because the action is barred by the Anti-Injunction Act ("AIA"), 26 U.S.C. § 7421.⁴ That statute provides that:

Except as provided in [specific code sections irrelevant here], no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.

26 U.S.C. § 7421(a). The AIA "withdraw[s] jurisdiction from the state and federal courts to entertain suits seeking injunctions prohibiting the collection of federal taxes." Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 5, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). "The manifest purpose of § 7421(a) is to permit the United States to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to the disputed sums be determined in a suit for refund." Id. at 6, 82 S.Ct. 1125.

That said, the AIA is not without exceptions. In addition to the statutory exceptions to the AIA (which are not applicable here), the Supreme Court has crafted limited judicial exceptions. The first of those was put forth in Williams Packing, 370 U.S. at 8, 82 S.Ct. 1125, which requires that the taxpayer show both that (1) under the most liberal view of the law and the facts, it is clear that the government cannot ultimately prevail under any circumstances, and (2) that equitable jurisdiction otherwise exists (that there is no adequate remedy at law). Id. at 393, 104 S.Ct. 1107. Several years later, the Supreme Court recognized another equitable exception to the AIA in South Carolina v. Regan, 465 U.S. 367, 372-73, 104 S.Ct. 1107, 79 L.Ed.2d 372 (1984), for situations in which the plaintiff has no alternative legal means to challenge the validity of the tax.

Neither party disputes that this is a suit for the purpose of restraining the assessment or collection of the exactions imposed under subsections (i) and (j). However, the plaintiffs argue, inter alia, that the Anti-Injunction Act does not bar their claims because the exactions in question are a "penalty" rather than a tax. Thus, whether the Anti-Injunction Act applies (and therefore prohibits this suit) depends on whether the payments under subsections (i) and (j) are "taxes."

The Anti-Injunction Act applies only when a "tax" is at issue; it does not apply when the exaction is a "penalty." See Lipke v. Lederer, 259 U.S. 557, 562, 42 S.Ct. 549, 66 L.Ed. 1061 (1922)("The collector demanded payment of a penalty, and [the Anti-Injunction Act], which prohibits suits to restrain assessment or collection of any tax, is without application."); see also 14 JACOB MERTENS, LAW OF FED. INCOME TAXATION § 49E:50 (1999) ("[P]enalties are not deemed to be taxes for purposes of Section 7421 ... Penalties are treated as an exception to the rule that an individual may not bring a suit for the purposes of restraining the collection of a tax.").

"[A] penalty, as the word is here used, is an exaction imposed by statute as punishment for an unlawful act." United States v. LaFranca, 282 U.S. 568, 572, 51 S.Ct. 278, 75 L.Ed. 551 (1931); accord Lipke, 259 U.S. at 562, 42 S.Ct. 549 (the "definite function of a penalty" is "punishment for infraction of the law"). A tax, on the other hand, usually "is an enforced contribution to...